Before strategy comes structure: Building a successful practice from the bottom up

As accountancy practices look to set a strategy and plan to propel themselves forward, they must first consider their governance, ownership and structure.

Kevin Reed speaks to senior partners about how their firm has put fundamental building blocks in place around equity structure, remuneration and succession planning, creating a foundation for resilience and growth.

This two-part article series touches on themes of growth initiatives, people strategy and management, workflow and client vision – all central to the Accounting Excellence Awards 2019. Entries open: click here for more details.

***

Laying the foundations for success

Does the tail wag the dog at your practice? That is to say: are you looking to improve your practice’s client service and profits without first considering the foundations upon which it sits?

If you don’t have a pipeline of partners coming through, or your governance structure and remuneration policy causes ill-feeling and fails to drive better performance, then it’s pointless looking to offer better and more valuable services to clients.

Single owner approach

From ‘structure’ as a starting point, the difference between a collegiate-style partnership and autocratic (single owner) regime will impact on operations and succession planning.

As Keith Underwood, MD of practice advisers Foulger Underwood, notes, a single owner can employ very good people who are well-remunerated – even if they understand it’s unlikely they’ll ever own any of the practice itself.

And for some, removing that pressure to focus on the job in hand is preferable – effectively splitting ownership and management of the practice.

“That structure can work where people are interested in just ‘the job’, even if they know the practice might end up staying in the owner’s family or sold on,” explains Underwood.

Ownership vs performance

While a collegiate-style practice that offers all partners a say can work, Underwood suggests that the split between ownership and running of the practice should still be attempted. “You should try to isolate them, certainly in terms of governance and remuneration,” he says.

The key reason behind this is to demarcate ownership versus performance.

Remuneration packages for equity partners are often fixed, with profits shared out in a simple manner linked to their equity holding. Instead, modern and ‘corporate-style’ practices are building hybrid and more layered remuneration structures, to better reflect work undertaken as opposed to how many shares someone holds.

“This can be to reward exceptional performance within the management team,” Underwood adds. “Management recruited and rewarded on performance without muddying the waters of having share ownership.”

Structuring the practice for growth

So, how are practices organising themselves to enable growth and resilience?

For Paul Maberly, senior and managing partner at top 40 firm Mercer & Hole, its 21 partners operate in a “traditional partnership”, but at 120 years old has proved “a sustainable model”.

While this means that equity partners still have to ‘buy in’, the figure goes in credit on account as opposed to towards goodwill. In other words, it is paid off over time and doesn’t create a goodwill payment headache for the firm at the end of someone’s tenure.

“The key aspect is flexibility – there’s nothing to stop partners coming in or retiring and no barriers as such from a financial perspective. For us, it’s fantastic. I don’t think the corporate model gives you that in the long term,” says Maberly.

Growth targets

Another key aspect of the firm’s approach to sustainability and resilience is its prudential growth targets. Mercer & Hole “isn’t looking to do anything spectacular”, says Maberly, focusing on 5% to 10% growth.

“Firms that go for significant growth can have a problem in that the infrastructure lags behind – you can then get problems on service quality – we’re better off having something more sustainable,” he explains.

Succession planning

A fundamental topic for the firm, in Maberly’s eyes, is succession planning. “It never comes off the table as far as I’m concerned,” he says.

The firm looks forward five to ten years on the issue. The firm is “transparent” about asking its people what their retirement plans are.

“Lots of firms have partners in late 40s and 50s, so it’s important to know when they’re hoping to retire and bring forward the next generation. We try very hard to bring people through from graduate to partner,” Maberly explains.

From this base, the firm can then move forward. Therefore, next week’s piece explores how these firms have gone about driving growth and rewarding its people.

The entry process for the Accounting Excellence Awards 2019 is now open. The Large Firm of the Year category sets a number of judging criteria: showing the quality of your firm and setting client vision; initiatives to growth and success; and how the firm has addressed people, process, workflow and market challenges. Click here to find out more.

Kevin Reed is one of the UK's most senior accounting and finance journalists. He has written for, edited or managed various business and finance titles for VNU, Incisive Media, and Contentive since 2000 - and is now a freelance journalist and consultant.